Labour has been hit by bitter recriminations including the resignation of a shadow ministerial aide over the party's decision to abstain from a Commons vote on a bill that would prevent 250,000 "exploited" jobseekers from receiving £130m in rebates.

The shadow work and pensions minister, Liam Byrne, conceded that it had been a "very, very difficult" decision to abstain in the face of opposition from party members and MPs. The abstention in effect allowed the bill's passage through the Commons without delay.

On Tuesday 44 Labour MPs rebelled against the party whip and voted against the jobseekers (back to work schemes) bill, dubbed the workfare bill, which is being enacted to reverse the outcome of a court of appeal ruling in what has become to be known as the Poundland case.

Ian Mearns resigned from his post as a parliamentary private secretary to the shadow international development secretary, Ivan Lewis, before rebelling against the party leadership.

Last month the court of appeal ruled that Cait Reilly, a science graduate, and her fellow complainant Jamieson Wilson, an unemployed lorry driver, had been unlawfully made to work unpaid for organisations including Poundland because the Department for Work and Pensions (DWP) had not given jobseekers enough legal information about what they were being made to do.

Senior members of the shadow cabinet were obliged to follow the instruction to abstain from the Commons vote. Following a briefing from Ed Miliband at Monday's meeting of the parliamentary Labour party, they had been warned that anyone who stepped out of line would be sacked.

Byrne wrote on the Labour List website on Thursday: "People are very angry about the jobseekers bill currently before parliament. Labour MPs are furious. Labour councillors and activists are angry. And they are right to be. This bill is an emergency fix to almighty incompetence at Iain Duncan Smith's DWP. Our decision not to support the bill in the Commons but to abstain was very, very difficult."

He defended the policy of abstention by saying Labour had won two concessions including the establishment of a independent review of the benefit sanctions regime.

But critics within his party accuse Byrne of failing to mount any significant opposition to the government's bill. "The problem is that Liam basically agrees with them," said one. "There is a lot of anger. This is a very important issue. He has missed an opportunity and put us on the wrong side of the argument."

Lawyers acting for Reilly and Wilson said on Thursdaythey had lodged submissions to the supreme court, which could declare the government's emergency legislation a breach of human rights. In the submissions, Public Interest Lawyers argues that the bill is a flagrant violation of its clients' access to justice.

It says the bill, which is expected to be passed into law early next week, will mean "persons who, like Mr Wilson, refused to participate on schemes, will have their extensive (and in Mr Wilson's case ongoing) benefits sanctions retrospectively validated, even though they were lawfully entitled to refuse to participate on the schemes at the time".

The firm argues that "the actions of the secretary of state … represent a clear violation of article 6 [of the European convention on human rights] and the rule of law, as an interference in the judicial process by the legislature".

Len McCluskey, general secretary of the Unite union, said: "Those Labour MPs who voted against the government saved the party's honour. Abstention in the vote risks being seen as tacit acceptance of forced labour.

"Labour needs to understand that it is the opposition to a disastrous government waging class war against the poor. Labour failed to provide that opposition, with the honourable exception of the 44 MPs who stood up for core Labour values of decency and justice."

During Tuesday's debate hundreds of leftwing activists and campaigners said on social media they would no longer support Labour at the next general election, and some threatened to cancel their party membership. Stella Creasy and Tom Watson, prominent Labour figures on Twitter, were berated directly.

The shadow employment minister, Stephen Timms, said Labour were supporting the emergency timetabling because they did not want the government to be in a position where "people who were sanctioned … well over a year ago are having to be refunded because of the appalling mess that the government has got itself into". He described the measure as "deeply unsatisfactory" but "less bad than the alternatives".

Mark Hoban, the employment minister, said the principle of undertaking some unpaid work for community benefit was supported by the majority of the public. He said he did not want jobseekers receiving "undeserved windfall payments" because of a ruling he described as a "technicality".

"This bill does not change the right of people to appeal save for appeals based on the high court or supreme court judgment," Hoban said.

The Labour rebel John McDonnell said the court of appeal ruling was not a technicality. "This is a fundamental constitutional issue. It meant that the government tried to slide through parliament without adequate consideration, regulations that would eventually deprive our constituents of significant sums of money.

"This use of retrospective legislation is simply making sure that illegality is made legal and sets an extremely dangerous precedent." McDonnell said he believed the bill was "about the demonisation of the unemployed".